Inflation. How Worried Should We Be?
This “Keep Calm” post showed up in my inbox today. I posted a partial of Economist Claudi Sahm’s report. She is discussing January CPI. I am more interested in the layoffs at the government and now corporations. I am seeing companies starting to follow suit with layoffs.
Today and after the crash at Washington D.C., Trump and Musk are laying off FAA personnel. Fifteen people injured on a Delta flight. A live feed from the airport show the flight upside down on the tarmac as people walk away and crews douse the plane. Television news reports say the Delta flight flipped over on landing. I am assuming not FAA related.
Keep calm. Inflation. How worried should we be?
– by Claudia Sahm
Stay-At-Home Macro (SAHM)
It’s one month of data. As Fed Chair Powell said last week, the Fed doesn’t overreact to a few months of good data or to a few months of bad data. We should not either. The January CPI was not good and slowed progress toward the Fed’s target. Even so, it is unlikely the start of a reacceleration in inflation.
Last year, we saw that the firm prints in the first quarter turned into soft prints in the summer. As a result, the year saw further progress: core CPI was 3.2% in December 2024 versus 3.9% in December 2023 despite its hot start. And it’s not just last year; January CPI has been a source of repeated upside surprises. This year, it is too soon to write off disinflation or Fed rate cuts in 2025.
This year’s surprise in CPI might not be as worrisome as last year’s. As one example, core services excluding housing—known as “supercore”—surged similarly this January and last, but it was less broad-based this year. Transportation services (in orange, led by motor vehicle insurance and airfares) and recreation services (in purple, led by subscription services and events), about one-third of the supercore category, accounted for almost 80% of the increase this January. Last year, the surge was spread more evenly across the supercore categories.
(Click on image to enlarge)
Source: Bureau of Labor Statistics via Bloomberg.
Economist Claudia Sahm: CPI was not good . . .
Last week, we learned that the Consumer Price Index rose by 0.47% in January, well above expectations. Excluding food and energy, the news was not much better, with a 0.45% advance. It was a disappointment and a familiar one. January has often been hotter than expected over the past several years. Given these new data, how worried should we be about inflation for this year?
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